Plunging oil exports, conflict, batter Sudan’s economy

Sudan's dispute with its southern neighbor over oil transit fees has created a $2.4 billion gap in the country's public finances and caused exports to plunge 83 percent, the Sudanese finance minister said on Monday.

It is an economic plight that has already seen ministers giving up pay and public sector workers losing a couple of days' wages to help fund a conflict with South Sudan.

Monday’s dismal numbers came as Sudan reported an annual inflation rate of 28.6 percent in April, rising against a backdrop of an economy strangled by high unemployment, a weak currency, U.S. trade sanctions, as well as the oil dispute.

Sudan, where oil accounts for 90 percent of its exports, has been struggling to cope after the conflict with South Sudan flared into border fighting and shut down nearly all oil production in the region.

So weighed down with funding the conflict with South Sudan, Khartoum has even called on its public sector workers to contribute portions of their salaries to support the military in their "Repulsion of the Aggressor" operation.

South Sudan inherited three-quarters of the oil when it gained independence in July. But the pipelines are in Sudan and the two have been unable to agree on how much the South should pay to transport its oil.

After several rounds of failed talks to resolve that dispute as well as conflict over border demarcation and citizenship, fighting along the 1,800 km (1,200 mile) border flared, raising fears full-scale war could break out in one of Africa's most significant oil regions.

Fighting has eased in the last few days, after the U.N. Security Council last week threatened both sides with sanctions unless they resumed talks within two weeks.

The row caused South Sudan to shut off 350,000 barrels per day of crude output in January and the South’s temporary seizure of a contested oilfield last month shut down nearly half of Sudan's 115,000 bpd output.

Sudan’s oil minister has since said the Heglig oilfield is pumping oil again, without specifying production amounts.

“Not reaching a deal with the government of the South over transit fees and petroleum servicing has caused a gap in the public financial sector worth about 6.5 billion Sudanese pounds,” Finance Minister Ali Mahmoud told lawmakers in an address on economic performance in the first quarter of 2012.

“Regarding exports, the first quarter of 2012 saw an 83 percent decline compared to the first quarter of 2011, and this happened because of the absence of oil.”

High gold exports

To fund Sudan’s military operation in the south, Sudan’s ministers gave up one month of their salaries to a fund set up to support the army. Other public sector employees had two days’ pay deducted from their salaries, while public institutions were required to cut fuel expenditure by 50 percent.

While Sudan said the economy grew by 2 percent in the first quarter of this year, it has failed to tame rampant inflation.

Mahmoud said inflation in the first quarter rose to 21 percent from 12.9 percent in the same period last year.

In April’s inflation report from the Central Statistics Office, month-on-month inflation was 5.5 percent in April as food prices rose across the board. Sugar rose 11.3 percent, vegetables 8.3 percent followed by meat prices which rose 7.4 percent and bread at 4.6 percent.

Inflation has more than doubled since the government effectively devalued the Sudanese pound in Nov. 2010 to curb black market activity - a measure that had no success.

In fact, Mahmoud said the value of the Sudanese pound had dropped considerably, saying the gap between the official price and market price was 55.5 percent compared to 8.8 percent in the same period last year.

“This was due to speculative activities in the foreign money market,” Mahmoud said. Officially, one dollar is worth 2.67 Sudanese pounds, but foreign exchange sellers are giving up to 5.7 pounds.